Share with your friends










Submit

Analytics Magazine

Inside Story: Mothers of Invention

March/April 2010

CLICK HERE TO GO TO THE DIGITAL VERSION OF THIS ARTICLE

If necessity is the mother of invention, then deregulation is the father, and revenue management is the couple’s golden child, at least as far as the airline industry is concerned.

The Airline Deregulation Act of 1978 spawned a host of low-fare carriers that could make money while selling seats at a fraction of the price charged by established airlines. That gave the upstarts a huge advantage.

The big carriers, locked into hefty labor and legacy costs, had no clear way of leveling the playing field. Their sheer size became a liability. All major airlines faced a troubling question: How can we compete? If we lower fares across the board, it doesn’t matter if we have a 100-percent load factor — we’ll still lose money. And if we don’t match the upstart airlines’ fares, we’ll lose market share, and eventually we’ll be out of business.

American Airlines solved the dilemma by offering different fare classes in each market. American matched the low-fare airlines’ prices with a portion of its seat inventory on certain routes and saved another portion for late-arriving, high-yielding demand (typically business travelers).

Thus was born the concept of revenue management, but several questions remained: How many seats do you sell at a discount and how many do you hold in reserve? When and by how much do you change the price of each bucket of inventory? Again, analysts and their tools of the trade — forecasting, optimization, etc. — came up with the answers.

Virtually every airline in the world adopted some sort of RM system, and the concept inevitably spread to many other industries (hotel, cruise, etc.) where you find perishable, limited capacity. Alas, RM couldn’t solve every corporation’s problems. Many airlines still went out of business, crushed by some combination of high legacy costs, soaring fuel prices, post-9/11 paranoia, the recession and good, old-fashioned corporate mismanagement.

Today, the purveyors and managers of RM systems face a whole new threat: the Internet and the tech-savvy customers it spawns as outlined in our cover story.

— Peter Horner, Editor
horner@lionhrtpub.com

CLICK HERE TO GO TO THE DIGITAL VERSION OF THIS ARTICLE

Analytics Blog

Electoral College put to the math test


With the campaign two months behind us and the inauguration of Donald Trump two days away, isn’t it time to put the 2016 U.S. presidential election to bed and focus on issues that have yet to be decided? Of course not.


Headlines

Accenture security report identifies top cyber threats

With recent large-scale cyberattacks signaling a growing front in destructive threats and business impact, a new midyear report from iDefense, part of Accenture Security, reveals how threat actors are continuing to evolve their ability to avoid detection. Based on in-depth analysis, the report anticipates a growth in the number of threat actors who are rapidly expanding their capabilities due to factors such as the proliferation of affordable, customizable and accessible tools and exploits. Read more →

Job searchers: It’s not just who you know, but how well you know them

While online networking sites enable individuals to increase their professional connections, to what extent do these ties actually lead to job opportunities? A new study in the INFORMS journal Management Science finds that, despite the ability to significantly increase the number of professional connections and identify more job leads with limited effort on these sites, unless the connection is a strong one, they typically will not lead to job offers.  Read more →

UPCOMING ANALYTICS EVENTS

INFORMS-SPONSORED EVENTS

Essential Practice Skills for High-Impact Analytics Projects
Sept. 26-27, Executive Conference Center, Arlington, Va.

Foundations of Modern Predictive Analytics
Oct. 2-3, VT Executive Briefing Center, Arlington, Va.

2017 INFORMS Annual Meeting
October 22-25, 2017, Houston

2017 Winter Simulation Conference (WSC 2017)
Dec. 3-6, 2017, Las Vegas

CAP® EXAM SCHEDULE

CAP® Exam computer-based testing sites are available in 700 locations worldwide. Take the exam close to home and on your schedule:


 
For more information, go to 
https://www.certifiedanalytics.org.